When Britain's Queen Elizabeth II sets foot in the UAE again this autumn, the economic picture will have changed dramatically since her last visit more than three decades ago. The large expanses of open desert the British monarch saw on her previous trip are now covered by soaring towers, deluxe hotels, motorways and other pillars of progress as the country has fast-tracked development.
Other things have changed, too, since her 1979 visit. Back then, the UAE had emerged from its status as a British Protectorate only eight years earlier and the UK was one of its dominant trading partners. Since then, the combination of the waning influence of the UK on the global stage and the emergence of developing countries in Asia has meant the nation's position has slipped. Even a decade ago, the UK and China had about the same share of the UAE's trade market. Today, while the UK's share has shrunk by half, China's has doubled.
This decline in economic ties has not gone unnoticed by the new UK government. David Cameron, the prime minister, was quick to establish a joint UK-UAE diplomatic task force after visiting the country last month in a bid to deepen economic, political and security links. "While there's no sense in expecting the UK will go head-to-head with China in manufacturing exports to the UAE, there are other opportunities for closer ties," says David Butter, the Middle East and North Africa director of the Economist Intelligence Unit in London.
The UK accounted for about 4.2 per cent of the UAE's imports of goods last year, ahead of Italy and France but lagging India, China, the US, Germany and Japan. The UAE is the UK's 13th-largest export market with bilateral trade worth about £7.5 billion (Dh42.49bn) a year. And the Emirates accounts for a large part of the US$85bn (Dh312.2bn) exposure UK financial institutions have to the Gulf. Exports of services, one of the UK's traditional strengths, offers among the best opportunities for closer co-operation.
Insurance is one sector of major interest to the UK. British insurers such as RSA, Prudential and Friends Provident already operate in the UAE, making them the leading players in the market. But the opportunities for further investment exist in a market that is forecast to grow by about 25 per cent annually until 2013. Part of that expansion will be fuelled by the non-life sector, which on average accounts for just 1 per cent of GDP in the Emirates. That compares with 2.9 per cent of GDP in the UK and 4.6 per cent in the US.
Participation in the country's reform of its corporate governance and increasing business transparency offers other possible business openings; it is also in the UK's best interests. UK banks had the biggest exposure among global lenders to the $23.5bn debt restructuring at Dubai World, and British contractors suffered from unpaid bills by Dubai Government-controlled property companies such as Nakheel.
"Despite, and because of, these short-term setbacks, the UK is committed to being a long-term partner to develop the financial infrastructure in the region," says Lord Sassoon, the commercial secretary to the UK treasury. Accountancy organisations such as the Institute of Chartered Accountants in England and Wales and the Chartered Institute of Management Accountants have already moved into the region as they look to help train local accountants and raise standards of disclosure among businesses.
And banking professionals working for the Government in Abu Dhabi and at the National Bank of Abu Dhabi (NBAD) are being trained under an agreement with the UK's Institute of Financial Services School of Finance. Last month, the Emirates Securities and Commodities Authority, the financial markets regulator, signed a deal with the UK's International Centre for Financial Regulation to strengthen market oversight.
With the Abu Dhabi Securities Exchange (ADX) planning to boost market liquidity and increase the sophistication of its product mix, UK entities are eyeing further openings for closer interaction. So far this year, UK investors have accounted for more than 20 per cent of total trade on the ADX, ranking first among foreign investors. "Where markets in the GCC, and the UAE in particular, are looking to extend their footprint we can help them turbocharge their initiatives through international collaboration, distribution agreements and sharing our experience, particularly around governance, training, technology and products innovation," says Xavier Rolet, the chief executive of the London Stock Exchange.
The ADX plans to list a second exchange-traded fund, following the launch of one by NBAD earlier this year, in addition to establishing the exchange as a base for sovereign and corporate bond issuances in the GCC. The focus on increasing the flow of trade and investment between the two countries is certainly not one-way. UAE officials are also keen to step up their game. Abdul Rahman al Mutaiwe'e, the UAE Ambassador to the UK, set a target this month of raising trade between the two countries from an estimated £8bna year to at least £12bn annually over the next five years.
UAE officials see tourism as key to reaching that target. Already, the Emirates receives more than 1 million visitors from the UK each year while an estimated 40,000 Emiratis visit the UK. Islamic finance is another industry which offers the UAE the potential for expanding economic relations with the UK. With the UAE one of the global leaders within Islamic finance, Sultan al Mansouri, Minister of Economy, has highlighted the sector as an area of focus for closer co-operation.
Since the incorporation of the first Islamic banks in the UAE in the 1970s, the industry's assets have grown to about 16 per cent of the country's total banking system. Yet UAE banks have yet to make serious inroads internationally, despite forecasts of annual growth of between 10 and 15 per cent for the industry. With only a handful of providers serving one of the largest Muslim populations in Europe, the UK may offer attractive opportunities for the UAE's Islamic lenders.
What appears a more certain form of investment in the coming years is the continuing flow of funds from the UAE's sovereign wealth funds and other investment companies. Such investments are helping to stimulate the UK's economy. The Abu Dhabi National Exhibitions Company's expansion of London's ExCel exhibition centre is estimated to bring £1.6bn of economic benefit to the capital and will support tens of thousands of jobs. DP World's £1.5bn London Gateway project, combining the UK's newest deep-sea container port with Europe's largest logistics park, is expected to generate up to 36,000 jobs once developed.
These dynamic investments by UAE companies contrast with the more passive investment strategies of the past. "In future we may see more active involvement in business rather than the erstwhile passive investment approach which seems to be more in decline," says Mr Butter. Any investment from the UAE could help to fill a funding gap in the UK as the government cuts expenditure to reduce the country's budget deficit.
When the British queen meets Sheikh Khalifa, President of the UAE, later this year, they are likely to both stress the need for a further strengthening of economic ties. tarnold@thenational.ae